Tourism industry discusses tax issues

Taxes have again come under discussion by Caribbean tourism professionals.

Speaking at the Caribbean Tourism Outlook Seminar in Jamaica, Hugh Riley of the Caribbean Tourism Organisation led a discussion on barriers to tourism growth in the region.

In the presentation, Mr. Riley said that direct taxes on consumers affected their ability and willingness to travel, because the taxes were reflected in the trip’s cost.

Demand, he said, plus its associated elasticity, was a moving target as it depended on both existing prices and consumer tastes. Another set of factors were customer preferences, incomes and expectations.

The presentation indicated that taxes were often governments’ primary revenue source. They therefore provide the structure and system that organise lives, and protect livelihoods, as well as creating the environment to generate jobs.

Industry

In the tourism industry, the taxes could promote the same sector being taxed, subsidise activities and provide incentives in the sector and re-distribute earnings in the sector and the economy as a whole.

The methods of taxation, said Mr. Riley, were either direct on the consumer through departure and ticket taxes, direct on the providers of tourism goods and services in the form of property and corporate taxes, or indirect taxes including VAT, sales tax and import duties.

The reality was that when the volume of business activity failed then the quantum of government revenue from those sources would also fall accordingly.

Across the Caribbean region governments employ some or all methods of taxation. However, Mr. Riley told the audience that airline and consumer feedback had indicated that taxes on flights originating in the Caribbean were unacceptably high, a factor that is said to dampen demand for intra-regional travel. Taxes on tickets in source markets were also rising.

Service charges

In the Caribbean, explained Mr. Riley, service charges generally ranged between 10 and 15 per cent and hotel room taxes between 6 and 20 per cent. There were also additional taxes on food and beverages dependent on territory. Airport departure taxes are mostly within the US$20 to $35 range and other taxes also applied dependent on destination.

“The downside of all of these taxes and charges is that they may, in fact, slow the revenue generating capacity of Travel & Tourism, and also slow or completely stifle job creation.

“High taxes can have a ripple effect on a local economy, maybe causing companies to hold an event elsewhere or send fewer employees to a conference,” said Mr. Riley.

He gave the example of New York’s state and local hotel taxes, which reached around 20 per cent during the 1990s. New York gained a reputation of being overpriced and business was often diverted elsewhere. The estimated tax loss from visitor spending was $962 million for an aimed gain of $463.2 million of room tax. The average tax rate on NYC hotel rooms has now dropped to 14.25 per cent.

Derided

The much-derided Air Passenger Duty, which has vastly increased the taxes payable on Caribbean-destined flights from the United Kingdom, once more came under fire. Mr. Riley quoted a Daily Telegraph article that said the new tax would penalise British holidaymakers on a well-earned holiday rather than, for example, a well-off business traveller flying on a private jet.

A similar tax that had been introduced by the Netherlands became revenue-negative and was abolished after a single year, said Mr. Riley.

The Caribbean Tourism Organisation had several funding strategies, he said, including developing and expanding funding sources from outside the region. International funding was 21 per cent of all money managed by the CTO in 2009, and the intent was to increase the level of project funding steadily over time.

The projects that would be targeted would be training, sustainable tourism development, research and data analysis, advocacy, energy efficiency programs, and special events.

Mr Riley indicated that the Caribbean Tourism Development Company had a list of 22 priorities and benefits to the region, the most important of which is to generate increased tourism revenue for the Caribbean.

Visa issues

Following September 11, 2001, visas had taken on increased importance as well as controversy. Mr. Riley conceded that they provided security benefits but also said they could be a deterrent to tourism. He called for a balance as there had been ‘an international and domestic outcry’ when the US tightened its visa requirements.

He reiterated the long-held idea that a unified visa requirement and fee policy could benefit the Caribbean or unified areas of domestic space.

Fund matching

Finally, Mr. Riley’s presentation dealt with the new United States Travel Promotion Act, new legislation that called for overseas travel promotion. It is intended to yield $4 billion in new economic stimulus, millions of new visitors and 40,000 new American jobs. Projected new federal tax revenue through this would reach $320 million, reduce the deficit by $425 million and increase revenues by $135 million over the next ten years.

The bill would be funded by a $10 fee payable by overseas visitors to the United States, plus matching private sector funds.

“Regardless of where we stand on tourism taxes, the future of this industry depends upon our ability to effectively market the Caribbean as one region.

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